Excellence

Company Background

Bayfront Infrastructure Management (“Bayfront”) was established in 2019 in connection with the Infrastructure Take-Out Facility (“TOF”) initiative, which was designed and structured by Clifford Capital to help mobilise institutional capital for infrastructure debt in Asia. The establishment of Bayfront builds on the successful issuance of Asia’s first securitisation of project finance and infrastructure loans through Bayfront Infrastructure Capital (“BIC”) in 2018.

The TOF has been designed with a view to providing investors with exposure to a diversified portfolio of project and infrastructure loans across multiple geographies and sectors, and positioned to fulfil several strategic objectives, including:

addressing Asia-Pacific’s infrastructure financing gap by mobilising a new pool of institutional capital;

Our Business Model

We are an innovative platform designed to mobilise a new pool of institutional capital for infrastructure debt in Asia.

There is a significant gap in Asia’s infrastructure financing needs and increasing requirements for private sector funding have created a need for long-term institutional capital. More investments are needed to sustain the high pace of economic growth in Asia, as well as to address the increasing urgency of infrastructure-related climate change mitigation and adaptation. Developing Asia therefore requires sufficient and affordable financing for future infrastructure development.

Our aim is to address this infrastructure financing gap in Asia Pacific by facilitating the mobilisation of private institutional capital into the infrastructure financing market. This will unlock more capital for infrastructure financing by banks, who have traditionally been the largest lenders in this sector, by allowing them to recycle their capital and liquidity.

Our primary business activities involve:

acquisition, warehousing and management of a portfolio of project and infrastructure loans;

sponsoring, structuring and managing all future distributions (through securitisation or otherwise) of these loans to institutional investors; and

investing in the equity tranche or vertical slice of each securitisation issuance that we sponsor.

Eligibility Framework

The Take-Out Eligibility Framework governs the criteria for take-out. The Framework includes:

Loan selection criteria

Due diligence parameters

Take-out commitment mechanism

Acceptance tests

MOUs in relation to the Take-Out Eligibility Framework with contributing banks

Designed to encourage banks to increase their origination appetite in lieu of increased confidence of take-out

Warehousing Facility

Bayfront to acquire loans from banks and hold them on its balance sheet while building a portfolio of loans for distribution. This would enable Bayfront to:

Provide certainty to banks that the loans would be taken out;

Accumulate sufficient volume of loans;

Identify the optimal market timing to launch a distribution transaction; and

Hold the loans in the event of adverse market conditions

Distribution Platforms

Distribution platforms (similar to Bayfront Infrastructure Capital) would be established to act as entities issuing securities to institutional investors

Other distribution formats (in addition to securitisations) can also be considered

Bayfront can also provide first loss buffer through investment in equity tranches or equivalent

Borrowing and debt instruments issued to finance our acquisition and warehousing of project and infrastructure loans benefit from a guarantee provided by the Government of Singapore.

Significant gap in Asia’s infrastructure financing needs and increasing requirements for private sector funding have created a need for long-term institutional capital

According to the Asian Development Bank (“ADB”), Asia will need approximately US$1.34 trillion annually in infrastructure financing between 2016 and 2020 to sustain economic growth, of which the investment gap (including climate change-related expenditure) is approximately US$455 billion, equivalent to 2.4% of the region’s GDP from 2016 to 2020.

More investments are needed to sustain the high economic growth in Asia, as well as to address the increasing urgency of infrastructure-related climate change mitigation and adaptation. Developing Asia therefore requires sufficient and affordable financing for future infrastructure development.

As of 2016/17, approximately 70% of infrastructure investment in Asia was financed by the public sector, which is unsustainable if the demand for infrastructure is to be met. In the private sector, infrastructure financing is currently dominated by commercial banks, export credit agencies (“ECAs”) and multilateral financial institutions (“MFIs”).

Unlocking and encouraging private sector involvement is the key to addressing the infrastructure financing gap in Asia

Private sector investment in infrastructure has not been constrained by a shortage of funds; in fact, of the estimated US$50 trillion in private capital managed globally by sovereign wealth funds, insurance companies, pension funds and other institutional investors, only 0.8% has been allocated to infrastructure in recent years. Moreover, the Asia-Pacific region is characterised by high saving rates which suggests an abundant and growing pool of capital to be deployed for investment.

There is significant potential for increasing private sector participation in infrastructure financing. Private investors stand to benefit from infrastructure as a separate asset class that improves portfolio diversification, stemming from its economic characteristics including high barriers to entry, economies of scale, inelastic demand for infrastructure-enabled services, high operating margins and the long tenors of concession agreements and leases. Infrastructure investments in turn offer value through attractive returns, low sensitivity to business cycles, low correlation of returns with other asset classes and stable and predictable long-term cashflows.

Nonetheless, private sector involvement in Asian infrastructure financing has been low relative to more advanced economies in North America and Europe. The ADB estimated that as of 2015, the public sector provided over 90% of Developing Asia’s overall infrastructure investment, which amounts to 5.1% of annual GDP, far above the 0.4% of GDP coming from the private sector.

Moreover, the split between public and private sector investment rates varies widely across subregions and economies.

While regional governments in Asia have increased their infrastructure expenditure and will likely continue to do so, for instance through fiscal reform on tax revenues and expenditures, there is still a substantial gap to be filled by the private sector. The ADB estimated that for 24 selected developing member countries, public sector fiscal reforms would be able to cover 39% of the US$308 billion financing gap (incorporating climate change induced funding requirements) over the period of 2016-2020, which leaves the remaining 61% to be filled by private sector finance in the absence of new avenues for generating additional public sector resources.

More private sector financing, beyond banks, is required to address the gap

Commercial banks have traditionally been, and still are the predominant source of private sector financing for infrastructure projects. However banks are increasingly facing constraints in their ability to bridge the financing gap, due to regulatory constraints such as risk exposure limits, more penal credit risk charges for longer tenor lending, specialised lending and pre-operational phase project finance lending under the Basel III framework.

Institutional non-bank investors are therefore best-placed to step in to fill the financing gap, particularly those seeking longer tenor assets to match their long-term liabilities. However many of such investors are reluctant or not ready to deploy their capital, mainly due to lack of familiarity with the infrastructure asset class especially in Asia, and limited ability to take project construction risk given their preference for stable returns.